Litigation Management, Inc. v. Bourgeois

In Litigation Management, Inc. v. Bourgeois, 2011 Ohio 2794 , the Court of Appeals for the Eighth Appellate District in Ohio (Cuyahoga County) held that a trade secrets plaintiff can now secure both a damages award for misappropriation of trade secrets and a permanent injunction to prevent further injury under Ohio's version of the Uniform Trade Secret Act.

Plaintiff-appellant, Litigation Management, Inc. (“LMI”) is a litigation support company, specializing in analyzing medical records. The lead defendant, Jean Bourgeois, was LMI’s chief operating officer. Bourgeois and the other defendants were all subject to noncompetition, nonsolicitation, and confidentiality agreements. Bourgeois was terminated in May 2003. In December 2004, she founded Excelas as a direct competitor to LMI and, in the words of the court, set up business “almost literally across the street.” She recruited the remaining defendants from LMI, all of whom were medical analysts, to work for Excelas and perform the same function.

LMI brought claims against the individual defendants for breach of the noncompetition, nonsolicitation, and confidentiality agreements; a claim against Excelas for intentional interference with contractual relations; and a request for a permanent injunction under the Uniform Trade Secrets Act, R.C. 1333.61, et seq.

LMI prevailed at trial on its claim for damages caused by defendants-appellees, Jean Bourgeois, Excelas, LLC, and a number of Excelas employees, all of whom were former LMI employees who breached the terms of nondisclosure and trade secrets agreements they made with LMI prior to founding Excelas, a direct competitor to LMI. In addition to damages, LMI sought a permanent injunction to enforce prospectively the terms of the noncompetition and trade secrets agreements. The court denied the injunction, finding that LMI failed to establish that it had suffered “irreparable” damages in light of the damage award. LMI argues that the court abused its discretion by finding that an injunction for prospective relief was barred when damages for the breach had been awarded.

In a ruling issued at the close of evidence in the trial, the trial court upheld the validity of the noncompetition agreements, but limited their geographic scope. It then submitted the amended noncompetition agreements and the trade secrets violations to the jury. In a general verdict, the jury found against each individual defendant and the corporation, awarding damages of $4,000 per individual defendant and $45,000 against Excelas.

Following the verdict, LMI asked the court to enter a permanent injunction against eight of the individual defendants and enforce the terms of the noncompetition, nonsolicitation, and confidentiality agreements. The court refused to enter a permanent injunction on the noncompetition claim because LMI did not show that it suffered an irreparable injury. It noted that each defendant had been ordered to pay damages as a result of the breach of their agreements, thus being made whole: “In short, not only is an adequate remedy at law available, it has been given. The wrong of competing unfairly has been righted by the jury’s award: LMI as received fair and reasonable redress.”

The Eighth District Court of Appeals disagreed, noting that the damages award only remedied the plaintiff's past damages, not its future damages. The Eighth District recognized that "injunctions concern the prevention of future harm, not compensation for, or punishment of, past harm" (Opinion at Para. 18). Without an injunction, the defendants would continue to have the benefit of the trade secrets post-trial and would continue to use them against the plaintiff.

In another noteworthy holding, the Eighth District found that the jury's verdict created a rebuttable presumption of irreparable harm resulting from the loss of the proprietary information. As a result, it found that the defendant now bears the burden of proving that the injunction should not issue in this situation.

The appeals court held that the evidence at trial had showed that LMI suffered irreparable harm from the misappropriation of its trade secrets; LMI expended money and effort into developing proprietary information that it wished to remain confidential and it took steps to protect this information by requiring its employees to sign nondisclosure and confidentiality agreements.

“Despite being under agreement not to disclose LMI trade secrets, Bourgeois and the other individual defendants took LMI’s proprietary information like pricing strategies and used them so that Excelas could solicit and underbid LMI clients. The evidence showed that Bourgeois used information compiled by LMI on existing customer preferences to win jobs for Excelas that, as an upstart, it might not have qualified enough to acquire... LMI’s trade secrets were undeniably misappropriated and used by the defendants to LMI’s disadvantage. Without an injunction, it is plain that those trade secrets would continue to be used in the future against LMI.” (Opinion at Paragraphs 15, 19.)

The appeals court held that the trial court had erred as a matter of law by finding that an award of compensatory damages showed that LMI’s harm was not “irreparable” for purposes of an injunction.